G20 Nations Agree to Automatic Exchange of Tax Information!

Heads of G20 countries meet today, September 5, 2013 in St Petersburg, where they will sign an agreement to counter 'Aggressive Tax Planning' by multinational companies. The global paradigm change in the fight against tax avoidance and evasion is set to be taken further by G20 leaders. The EU, with its considerable expertise and experience – for example, in creating an EU-wide system for the automatic exchange of information, or the fight against aggressive tax planning – will push for the automatic exchange of information to become the global standard. It will, notably, support any efforts that help to ensure its swift implementation. The EU will also strongly support the OECD's action plan to fight corporate tax avoidance worldwide, which this summit is expected to endorse.OECD's Action Plan to Combat Tax Avoidance

Co-operation between tax administrations is critical in the fight against tax evasion and a key aspect of that cooperation is exchange of information. Political interest has increasingly focussed on the opportunities provided by automatic exchange of information.

What is Automatic Exchange?

Automatic exchange of information involves the systematic and periodic transmission of “bulk” taxpayer information by the source country to the residence country concerning various categories of income (e.g. dividends, interest, royalties, salaries, pensions, etc). It can provide timely information on non-compliance where tax has been evaded either on an investment return or the underlying capital sum even where tax administrations have had no previous indications of non-compliance.

Standardised Model of Automatic Exchange

The OECD is developing a standardised, secure and cost effective model of bilateral automatic exchange for the multilateral context. The advantage of standardisation is process simplification, higher effectiveness and lower costs for all stakeholders concerned. A proliferation of different and inconsistent models would potentially impose significant costs on both government and business to collect the necessary information and operate the different models.

A standardised multilateral automatic exchange model requires a legal basis for the exchange of information. There are different legal bases upon which automatic exchange could take place, including a bilateral treaty with Article 26 of the OECD Model Tax Convention, or the Multilateral Convention on Mutual Administrative Assistance in Tax Matters.All treaties and exchange of information instruments contain provisions regarding tax confidentiality and the obligation to keep information exchanged as secret or confidential. The OECD recently released a Guide on Confidentiality, “Keeping it Safe” which sets out best practices related to confidentiality and provides practical guidance on how to meet an adequate level of protection.

Finally, the development of common technical solutions for reporting and exchange of information is a critical element in a standardised exchange system – especially one that will be used by a large number of countries and financial institutions.